Why is the development of the Panda Bond market accelerating?

Note: This article was published in “Caijing” magazine on March 25, 2026. Please indicate the source when reprinting. The accompanying image was taken at the Beijing Olympic Forest Park.

At the 2026 China Development Forum, People’s Bank of China Governor Pan Gongsheng stated that the current financing cost of the renminbi is relatively low. In 2025, governments from multiple countries, international development organizations, financial institutions, and large enterprises issued panda bonds exceeding 170 billion yuan, with the offshore renminbi bonds issued in Hong Kong being even larger. The People’s Bank of China will continue to improve the institutional arrangements for cross-border use of the renminbi and the construction of financial infrastructure, carry out diversified monetary and financial cooperation, promote the development of the offshore renminbi market, and provide convenience for cross-border trade and investment activities.

Panda bonds refer to bonds issued by overseas institutions in the domestic market of China that are denominated in renminbi. In October 2005, the International Finance Corporation (IFC) and the Asian Development Bank (ADB) were each authorized to issue 1.13 billion and 1 billion yuan bonds in the China interbank bond market, becoming the first issuers of panda bonds. However, during the decade from 2005 to 2014, the development of the panda bond market in China was relatively slow. On one hand, the issuers were limited and the issuance scale was low, with the annual issuance amount not exceeding 3 billion yuan. On the other hand, there were no new panda bond issuances during the periods of 2007-2008 and 2010-2013.

Since 2015, the issuance of panda bonds has noticeably accelerated. For example, according to Wind data, the annual total amount of panda bond issuance increased from 13 billion yuan in 2015 to a historic peak of 194.8 billion yuan in 2024, with 2025 also reaching as high as 183.6 billion yuan. As of March 24, 2026, the issuance of panda bonds in 2026 has already reached 78.2 billion yuan, and this year is expected to set a new historical high. So far, the cumulative issuance of panda bonds has exceeded 1.2 trillion yuan. For instance, the number of panda bonds issued increased from 11 in 2015 to a historic peak of 124 in 2025. Additionally, the outstanding balance of panda bonds rose from 194.6 billion yuan at the end of 2017 to 479.8 billion yuan as of March 24, 2026, nearing the 500 billion yuan mark.

A classification and statistical analysis of the current outstanding panda bonds reveals the following characteristics: First, the bond types are primarily medium-term notes, international institution bonds, short-term financing bonds, corporate bonds, and financial bonds, which account for 45%, 30%, 8%, 8%, and 6%, respectively; second, the bond issuers are mainly non-financial institutions, financial institutions, and international development institutions, accounting for 52%, 30%, and 16%, respectively; third, regarding the remaining maturity, the main categories are 2-3 years, within 1 year, and 1-2 years, accounting for 29%, 28%, and 24%, respectively; and fourth, in terms of the credit ratings of the issuers, AAA-rated bonds dominate, accounting for 90%.

The top five issuers of outstanding panda bonds are the New Development Bank (49.5 billion yuan), China Mengniu Dairy Company Limited (26.1 billion yuan), Beijing Enterprises Holdings Limited (23.4 billion yuan), China Everbright Holdings Company Limited (22 billion yuan), and China Power International Development Limited (20.5 billion yuan). It is evident that the leading bond issuers are multilateral financial institutions headquartered in China and high-quality Chinese companies registered overseas. In terms of investor structure, the top four investors include non-legal entity products, state-owned large commercial banks, overseas institutions, and joint-stock commercial banks.

Why did the panda bond market develop slowly in the first ten years, but has noticeably accelerated since 2015?

One reason is the significant changes in the renminbi to US dollar exchange rate and the interest rate spread between the renminbi and the US dollar. On one hand, prior to the “8.11 exchange rate reform” in 2015, there was a persistent expectation of appreciation for the renminbi against the US dollar in the foreign exchange market. Generally, medium- to long-term bond issuers are less willing to borrow in a currency that is expected to appreciate. After the “8.11 exchange rate reform” in 2015, the renminbi to US dollar exchange rate reversed from an appreciation expectation to a depreciation expectation. Following the introduction of the counter-cyclical factor in mid-2017, the renminbi to US dollar exchange rate exhibited a more pronounced two-way fluctuation. In other words, the disappearance of the expectation for the renminbi to appreciate against the US dollar has made issuers more willing to borrow in renminbi. On the other hand, prior to mid-2022, the yield on 10-year Chinese government bonds was significantly higher than that on US government bonds of the same maturity, making issuers less inclined to borrow in renminbi at a higher financing cost. However, since the second half of 2023, the yield on 10-year Chinese government bonds has been significantly lower than that on US government bonds, making issuers more willing to borrow in renminbi. A related piece of evidence is that the issuance of panda bonds was 85.1 billion yuan in 2022. From 2023 to 2025, the issuance of panda bonds was 154.5 billion yuan, 194.8 billion yuan, and 183.6 billion yuan, respectively, showing explosive growth.

Currently, the yields on 10-year Chinese and US government bonds are around 1.8% and 4.3%, respectively, making borrowing in renminbi more attractive. According to Wind data, the weighted average issuance interest rate of panda bonds decreased from 4.97% in 2018 to 2.01% in 2025, and further down to 1.86% in the first quarter of 2026. Low financing costs are undoubtedly one of the fundamental reasons for the recent significant development of the panda bond market. Meanwhile, it is noteworthy that the decrease in the weighted average issuance interest rate of panda bonds has been accompanied by a shortening of the weighted average issuance term. From 2016 to the first quarter of 2026, the weighted average issuance term of panda bonds decreased from 4.36 years to 2.26 years. However, in 2025, the proportion of panda bonds with an issuance term of 5 years or more reached 31.45%, an increase of 2.09 percentage points compared to 2024. In the future, the weighted average issuance term of panda bonds is expected to rebound from its bottom.

In fact, in recent years, not only has the panda bond market developed rapidly, but the Hong Kong renminbi loan market and the dim sum bond market have also experienced rapid growth. This indicates that as the renminbi to US dollar exchange rate exhibits two-way fluctuations and the long-term interest rates of the renminbi are significantly lower than those of the US dollar, the development of renminbi-denominated debt products is likely to accelerate significantly.

The second reason is the institutional opening-up of China’s bond market and capital account, which has enhanced the attractiveness for overseas entities to issue panda bonds in China. The expansion of the exchange bond market between 2015 and 2016 once drove an increase in panda bond issuance. The release of the “Notice from the People’s Bank of China and the State Administration of Foreign Exchange on the Management of Funds for Bond Issuance by Overseas Institutions in China” at the end of 2022 provided greater institutional convenience for panda bond issuance. On one hand, the registration process for overseas entities issuing panda bonds has been continuously simplified. On the other hand, the raised capital can be promptly withdrawn from China according to funding needs, and can also be flexibly used for domestic projects. Cross-border funds can operate efficiently through a “green channel,” which undoubtedly enhances the attractiveness of panda bonds.

Furthermore, the issuance of panda bonds has effectively aligned with the implementation of the “Five Major Financial Initiatives.” With the introduction of relevant support policies such as sci-tech panda bonds and green panda bonds, the variety of panda bonds has become increasingly rich, and the product structure has become more diversified, further enhancing the attractiveness of the panda bond market for issuers and investors. In early 2026, the Industrial and Commercial Bank of China and the China Central Depository & Clearing Co., Ltd. jointly released the “China Bond-ICBC Panda Bond Series Index,” which is the first bond series index reflecting the panda bond market situation in China. This series of indices can provide authoritative benchmarks and tracking targets for participants in the panda bond market. In the future, based on the above bond index, financial institutions may develop panda bond ETFs, thereby attracting more overseas investors to participate in the panda bond market.

The third reason is that the ongoing promotion of the internationalization of the renminbi has significantly enhanced the genuine demand for renminbi funds from overseas entities. In the early stages of renminbi internationalization, the overseas use cases for renminbi were still relatively limited. Overseas entities held renminbi mainly due to expectations of appreciation and the positive interest rate differential between the renminbi and the US dollar. As the expectations regarding the renminbi exchange rate and the US-China interest rate spread changed, the willingness of overseas entities to hold renminbi would fluctuate significantly, which could also cause relative changes in the speed of renminbi internationalization. However, with the continuous advancement of the renminbi’s internationalization process, the renminbi has gradually become the largest settlement currency for China’s external receipts and payments, the second-largest trade financing currency globally, the fourth-largest payment currency in the world, and the fifth-largest reserve currency globally. Especially in countries along the “Belt and Road,” the RCEP region, and neighboring countries of China, the demand from relevant entities to hold renminbi and use it for trade and investment is increasingly strong. This genuine demand not only allows for a smoother future path for renminbi internationalization but will also continuously strengthen the demand for renminbi financing among overseas entities, which in turn will promote the development of the panda bond, dim sum bond, onshore and offshore renminbi loan markets.

It is noteworthy that in 2025, the proportion of pure foreign-funded issuers in the panda bond market significantly increased, with wholly foreign-owned enterprises/foreign-funded enterprises accounting for 22.58% of panda bond issuances, an increase of 5.15 percentage points compared to 2024. For example, Morgan Stanley became the first US financial institution to issue panda bonds, the African Export-Import Bank became the first African multilateral financial institution to issue panda bonds, and the Hungarian government issued 5 billion yuan in sovereign bonds, setting a record for sovereign bond issuance.

In summary, for a considerable time in the future, renminbi-denominated debt products represented by panda bonds and dim sum bonds will continue to experience robust growth, which will not only enhance the diversity and liquidity of the Chinese financial market but will also continuously support the internationalization of the renminbi.